The Little Red Book: Economic Mobility as Mindset

“I brought along a prop for my talk,” says Stuart Butler. “It has never been seen in public before.” He thumbs to a well-worn page in a little red book.

“This is my West Midland Bank Trustees Savings Book from elementary school in England. On November the sixth, 1953, I put four pounds into this book. The money was out of my piggy bank that my mother made sure that I put every penny and farthing into.”

As a boy, Butler grew up in the sheep-farming county of Shropshire, about 80 miles south of Manchester. He recalls that he and his fellow students were routinely called to line up ceremoniously in front of their headmaster. Each student, savings book in hand, waited anxiously as the headmaster validated his progress with a signature of approval. “Everybody did this,” Butler says. “I went to a very rural school. We had no inside toilets, but we had savings accounts!” The son of a mechanic who left school at age 13, Butler says that he was not raised in an “affluent family,” but credits the emphasis of savings during his formative years as instrumental to his success in life.

He was not alone. Butler, now director of the Center for Policy Innovation at the Heritage Foundation, was in like company at a September 12, 2012, conference on “Pathways to Economic Mobility: How Can Philanthropists Help the Poor Build Wealth?” The conference sponsored by The Philanthropy Roundtable and co-hosted by Philanthropy New York and Legacy Venture, provided a forum for donors, experts, and practitioners to share their own stories and strategies on how to revitalize economic opportunity for low-income families in the United States—not just to provide more jobs; but to grant wider access to the American dream.

Diana Elliott, research manager for the Economic Mobility Project at the Pew Center on the States, presented recent findings concerning what she called “the health and status of the American dream.” Her data, chronicled in Pew’s Pursuing the American Dream, offer a mixed view. While a majority of Americans (84 percent) exceed their parents’ family income and wealth, the extent of their absolute mobility gains are not always enough to move them to a higher rung of the economic ladder. If a poor child has little reason to believe that she can “grow up to be whatever she wants,” it may be of little comfort to know that she will likely make more money than her parents. A better-off caretaker may still have wanted to be a doctor. “There is stickiness at the ends here,” says Elliott. Compared to earlier points in our nation’s history, the net incomes and in turn, the economic mobility of Americans seems capped. The “stickiness” Elliott is referring to can be found in the numbers: despite frequent references to the United States as a classless society, about 62 percent of Americans (male and female) raised in the top fifth of incomes stay in the top quartile. Similarly, 66 percent born in the bottom fifth stay in the bottom two-fifths.

The study also considered whether people are able to move up the income ladder relative to their peers—that is, how common is the latter-day Horatio Alger? To measure this “relative upward mobility,” Elliott focused on people in the bottom half of the income distribution and tracked whether those individuals were able to move up at least 10 percentiles. For example, a person who starts out in the 20th percentile would have to climb to at least the 30th percentile after a decade in order to be considered “upwardly mobile” in the study. Among today’s middle-aged Americans, three in five households have shown mobility by reaching the middle class, but the extent to which this will be true for today’s children remains to be seen.

Already, there are signs that social mobility will continue to decline. More concerning are the perniciously large gaps witnessed between races, genders, and socioeconomic circumstances at birth. For example, the mobility gap still leaves the American dream deferred for many African Americans. Over half of blacks (53 percent) raised in the bottom of the family income ladder remain stuck in the bottom as adults, compared with only a third (33 percent) of whites. Half of blacks (56 percent) raised in the middle of the family income ladder fall to the bottom two rungs as adults compared with just under a third of whites (32 percent). “The concern is whether [there is] something about America—or our structure here—that makes it particularly difficult for some people on the bottom to move,” says Butler.

The conference proceeded to answer this question within the framework of three forms of capital: social, human, and financial. These three areas of capital (or “buckets,” according to Elliott) are not mutually exclusive, but inextricably linked. Social capital comprises the environmental influences acquired through relationships to people and institutions (family, school, church). The decay of families, and the fact that huge numbers of children now grow up without one or both parents in the home, is generally agreed to be one of the heaviest weights dragging down upward mobility. Human capital indicates individual attributes such as education and health: the skills and personal traits that seem to cause some people to be able to take greater advantage of economic opportunities open to them. This capital cannot be underestimated in the 21st century, when a high school diploma alone will no longer provide upward economic mobility. According to Pew’s research, attaining a college degree makes a person more than four times more likely to rise from the bottom of the family wealth ladder to the top.

Some have called this capital “quiet capital,” in that it deals with the genetic make-up of individuals, the contested area of raw ability and natural skills. With quiet capital, others have elevated the nurtured “chutzpah” it requires to succeed. Qualities such as “persistence, self-control, grit, time horizons,” says Butler, “are strong indicators,” if not some of the strongest, of potential economic mobility.”

Financial capital refers to the financial resources that so often seem to affect the ability to get ahead, to cushion hard times, to pay for the accumulation of hard skills and assets. The most common form of financial capital is personal savings and wealth. (Wealth, in this case, being the “ability to withstand loss,” according to Alec Forrester, Rising Tide Capital). Apparently, similar people differ in their ability or desire to save rather than consume, or to steward and use resources prudently—a fact that concerns Butler.

“Formation of capital is really important,” he says. “When people save and start thinking of accumulating capital as opposed to buying lottery tickets, they seem to function differently in terms of thinking about the future. They get into a different psychology. One of the challenges in the low-income community is the difficulty so often of creating the kind of encouragement to enable people to push them to save in some way. There are organizations here that are addressing this very issue. But the difficulty of an environment of savings itself, even modest savings, in low income communities seem to be very damaging in their ability to move up.”

The idea that the poor need assets—retirement savings, college funds—seems like common sense, but for most of the 20th century, academics and policymakers framed the debate, and as a result, potential solutions, around income and consumption, leaving savings and assets out of the equation. It was only in 1991, with the publication of Assets and the Poor by Michael Sherraden that what has become known as the assets field emerged and radically challenged the notion that the poor could not save and build wealth.

The Roundtable’s conference ended with the voices of practitioners. These leaders shared how they were interlocking “capital” to help the working poor build wealth and achieve life-changing aspirations. These practitioners included Sherry Riva of Compass Working Capital, whose housing program has shown penetration rates upwards of six times as high in comparison its federal counterpart; Alex Forrester of Rising Tide Capital, who believes that “entrepreneurs are at the very heart of the American dream” and is empowering entrepreneurial-minded individuals with the skills, tools, and resources they need to build a small business; and, Ben Mangan, CEO of EARN, a leading micro-savings provider, who reiterated the principle that “big dreams”—especially the American dream—“start with small savings.”

Unlike Stuart Butler, many of the working poor did not grow up with a little red savings book in hand, recording every acquired penny and shilling. Does this mean that the working poor are hopeless, that the American dream is out of their reach? Ask Butler or anyone in attendance at the conference and the answer would be a resounding “No!” If savings is a behavior, it can be learned; and if it can be learned, with the help of philanthropists, all can find pathways to the American dream—even the working poor.

Dashell Laryea is an intern with the economic opportunity program at The Philanthropy Roundtable.